Skip to content
1031 Exchanges
Jo Bavani's profile image
  • Member since Sep 14, 2023

User Stats

2
Posts
0
Votes
Jo Bavani's profile image
  • Member since Sep 14, 2023
Jo Bavani
0
Votes |
2
Posts

Can I do a 1031 exchange on my balloon payoff from Contract for Deed?

Jo Bavani
Posted Sep 17 2023, 05:15

I am considering selling a property via owner financing and want to understand the tax implications pros and cons. Please share any pointers including the obvious ones as I am new to this. 

Also is there some way to do a 1031 Exchange on the balloon payoff (5 or 7 year term)?

The rental was purchased in 2020 and is free and clear. It is an investment property and never owner occupied.  

Bill Exeter's profile image
Bill Exeter
Pro Member
  • #2 1031 Exchanges Contributor
  • 1031 Exchange Qualified Intermediary
  • from San Diego, CA
  • Member since Jan 6, 2008

User Stats

1,961
Posts
1,311
Votes
Bill Exeter's profile image
Bill Exeter
Pro Member
  • #2 1031 Exchanges Contributor
  • 1031 Exchange Qualified Intermediary
  • from San Diego, CA
  • Member since Jan 6, 2008
Bill Exeter
Pro Member
#2 1031 Exchanges Contributor
  • 1031 Exchange Qualified Intermediary
  • San Diego, CA
1,311
Votes |
1,961
Posts
Bill Exeter
Pro Member
#2 1031 Exchanges Contributor
  • 1031 Exchange Qualified Intermediary
  • San Diego, CA
Replied Sep 17 2023, 06:33

You can do a 1031 Exchange at the time of sale with the seller carry back note, but can't do it when the note pays off.  The note payoff is just a pay down or pay off of debt and is not considered a sale of real estate at that point.  The actual sale of the real property occurs upfront and the "net proceeds" from the sale of the real property includes not only the cash but the seller carry back note.  The entire amount of "net proceeds" must be used toward the purchase of replacement properties to defer the payment of all your taxes. I would search for "1031 Exchange and Seller Carry Back Notes" to get much more information on the topic. 

Celia Moore's profile image
  • Specialist
  • from Portland, OR
  • Member since Jul 14, 2020

User Stats

96
Posts
107
Votes
Celia Moore's profile image
  • Specialist
  • from Portland, OR
  • Member since Jul 14, 2020
Celia Moore
  • Specialist
  • Portland, OR
107
Votes |
96
Posts
Celia Moore
  • Specialist
  • Portland, OR
Replied Sep 26 2023, 09:50

Hi Jo! The short answer is no. In a contract for deed, the “sale” occurred when the contract began, not when it is paid off. Therefore, you cannot do a 1031 exchange for a balloon payoff on a sale that already occurred. Hope that helps!

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes